Disadvantages Of Indirect Taxes

Accounting , Business
Major drawbacks or disadvantages of indirect taxes are as follows:

1. Unfair/Regressive

Both rich and poor people have to pay same amount of tax because taxes are included in the price of the products and services. So, poor people have to may more amount of their income as tax. So, indirect taxes are regressive and unfair in nature.

2. No Civic-consciousness 

Tax payer does not feel the burden of taxes as they are wrapped in the purchase price. So, it lacks civic-consciousness. 

3. Restrict Free Trade

Free trade may be restricted due to high export and import duties.

Higher tax rate increases the price of the products which may lead to inflation.

5. Harmful To Industries

Cost of production will be high if raw materials and machinery are highly taxed. It reduces the competitive capacity of industries.

6. Burden For Poor People

Indirect taxes reduce the saving capacity of poor people. So, these taxes are not suitable for households and low-income groups.
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Advantages Of Indirect Taxes

Accounting , Business
Major benefits or advantages of indirect taxes can be pointed as follows:

1. Convenient To Pay

Indirect taxes are imposed while purchasing goods or services. Taxes are already added in the price of the product. So, the 'Pre-coated' tax makes convenience to both the tax payer and the administration.

2. Broad Based

Since tax is wrapped up in the price of goods and services they are imposed on all people (i.e rich, poor, young, old etc.). So, indirect taxes have wider scope than direct taxes.

3. Economical

These taxes are easy to collect. It takes less effort, less time and less cost to collect tax. So, indirect taxes are economical in nature.
advantages indirect taxes

4. Flexibility

Indirect taxes are more flexible than direct taxes. Tax rates can be easily changed by the authority as per the nation's requirement.

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5. No Tax Evasion

As we know that taxes are included in the purchase price of the product, there is no chance of tax evasion.

6. Limits Harmful Consumption

Harmful products such as tobacco, alcohol and intoxicants are heavily taxed by the state. It helps to limit the consumption of such products.
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Disadvantages Of Direct Taxes

Accounting , Business
Major drawbacks or disadvantages of direct tax can be pointed out as follows:

1. Chance Of Evasion

There is high chance of tax evasion. It is very easy for the people to evade tax by submitting false income report. Corrupted administration also plays significant role in tax evasion.

2. Inconvenience

It is inconvenient for the taxpayer to follow different process and filling different forms to pay tax. It is also inconvenient to make proper record of payment.

3. Discourage Investment

Higher tax rate reduce the saving capacity of the people. Low saving affects investment capacity. So, direct taxes adversely affect the capital formation.

              disadvantages direct taxes

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4. Reduce Motivation

High tax rate demotivates people to work hard and make more money. It hampers their ability and effectiveness at work.

5. Discourage Entrepreneurs

Entrepreneurs are discouraged to commence business because of direct taxes. It negatively impacts nation's business environment. 
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Advantages Of Direct Taxes

Accounting , Business
Merits or advantages of direct tax can be expressed as follows:

1. Simple To Estimate

One notable advantage of direct tax is its simplicity. Direct taxes are very simple to estimate and easy to understand. Tax amount can be calculated without any complication.

2. Ensures Fairness

Fairness is another benefit of direct taxes. Higher tax rate is imposed for high income groups and lower for lower income people. So, it ensures fairness, equality and justice according to the level of income.

3. Transparency/Certainty

Direct taxes are transparent in nature. Both tax payers and receivers (government authority) are certain about the rate and amount of tax to be paid.
advantages direct taxes

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4. Less Costly

Generally taxes are collected at the source which saves both time and money. So, direct taxes are economical in nature.


5. Elastic 

Tax rates can be increased or decreased by the government as per the need of the country. So, direct taxes are elastic in nature.

6. Revenue For Government

Direct tax is a major source of government revenue. It is highly productive and very important for economic development. 
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Disadvantages Of Index Number

Education , Statistics
Major limitations or disadvantages of index number can be expressed as follows:

1. Lack Of Accuracy

Index number lacks accuracy because it represents only the rough indication of relative changes in variables (i.e. price and quantity).

2. Difficult To Select Base Year

In this method, variables of current year are compared with the variables of base year. But it is very difficult to choose suitable base year while constructing index number.

3. Nor Suitable For Long Period

Index number is not suitable to compare the changes over long period of time.

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4. Limited Use

Index numbers are constructed for the specific time and for certain objectives. They cannot be used for other purposes.
disadvantages index number
5. Difficult To Select Price

It is difficult to select price (wholesale price or retail price) while preparing index number.

6. No International Comparison

Because of different bases, different variables, it is not possible for international comparison.
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Advantages Of Index Number

Education , Statistics
Main advantages or uses of index number can be highlighted as follows:

1. Measurement Of Relative Changes

Index number helps to measure the quantitative changes in variables by comparing the data of current year with the data of base year.

2. Measurement Of Price Level Change

Under this method, the price of current period can be compared with the price of past period. It helps to know the changes in price level and value of money.

3. Measurement Of Inflation Rate

Index number helps to know the inflation rate by measuring price level and value of money between two periods.

4. Measurement Of Changes In Standard Of Living

It helps to measure standard of living by comparing cost of living and price level. So, the living standard of people can be known.

5. Wage Policy Formulation

Index number helps to determine wages and allowance of employees. Adjustment in  wages and salaries are made according to the cost of living.

     
advantages index number


6. Useful In  Decision Making

Index number is very useful in planning and decision making process of the business firm.

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7. Useful In Foreign Trade

It is used to compare imports and exports of two different periods. So, it provides key information about the volume of foreign trade.
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